What Is Alpha? Definition Of Alpha, Alpha Meaning

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PREV DEFINITIONAlgorithm TradingAlgorithm trading is a system of trading which facilitates transaction decision making in the financial markets using advanced mathematical tools.Read More
NEXT DEFINITIONAmerican OptionAmerican options are derivatives contract with the option of redeeming the contract during the life of the option.Read More

What is 'Alpha'

Definition: Alpha is an estimated numeric value of a stock's expected excess return that cannot be attributed to the market's volatility, but may be due to some other security. Description: In other words, it is the difference between the investment return and the bench mark return (for e.g. NSE Nifty). It is one out of the five technical risk ratios which help the investor to determine the risk reward portfolio of the mutual fund. Statistically, an alpha is generated by regressing a stock's excess return on benchmark (for example NSE Nifty) excess return. Alpha is an intercept. For example, if a stock has an alpha of 1.20, that means analysts expect 20% increase in the stock's price, not being affected by market fluctuations. Fundamental investors always want an alpha to be positive and beta to be zero. Also See: Beta, Alpha, Volatility, Alpha Shares

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PREV DEFINITIONAlgorithm TradingAlgorithm trading is a system of trading which facilitates transaction decision making in the financial markets using advanced mathematical tools.Read More
NEXT DEFINITIONAmerican OptionAmerican options are derivatives contract with the option of redeeming the contract during the life of the option.Read More

Related Definitions

52 Week High Low
: Prices of commodities, securities and stocks fluctuate frequently, recording highest and lowest figures at different points of time in the market. A figure recorded as the highest/lowest price of the security, bond or stock over the period of past 52 weeks is generally referred to as its 52-week high/ low. Description: It is an important parameter for investors (as they compare the current tr
Algorithm
t is Algorithm?The term "algorithm" refers to a collection of guidelines to be followed in computations or other problem-solving procedures. This sums up the algorithm definition. It is also a process for handling a mathematical equation in several iterations, sometimes using recursive operations. It is often easy or complex, depending upon the nature of the problem. What are the characteristics o
Algorithm Trading
Algorithm trading is a system of trading which facilitates transaction decision making in the financial markets using advanced mathematical tools.Description: In this type of a system, the need for a human trader's intervention is minimized and thus the decision making is very quick. This enables the system to take advantage of any profit making opportunities arising in the market much before a hu
Alpha
: Alpha is an estimated numeric value of a stock's expected excess return that cannot be attributed to the market's volatility, but may be due to some other security. Description: In other words, it is the difference between the investment return and the bench mark return (for e.g. NSE Nifty). It is one out of the five technical risk ratios which help the investor to determine the risk reward p
American Option
: American options are derivatives contract with the option of redeeming the contract during the life of the option. Description: The unique feature of redeeming the contract before maturity or on the date of maturity gives it an added advantage of tradability. Due to this particular feature, it is the most widely traded option on trade exchanges. It is highly liquid in nature. It is to be n
Arbitrage
Arbitrage is the process of simultaneous buying and selling of an asset from different platforms, exchanges or locations to cash in on the price difference (usually small in percentage terms). While getting into an arbitrage trade, the quantity of the underlying asset bought and sold should be the same. Only the price difference is captured as the net pay-off from the trade. The pay-off should be
Asset
are things you own that you can sell for money. In accounting, an asset is any resource that a business owns or controls. It's anything that could be sold for money. The study of a balance sheet and assets and liabilities helps us to ascertain the equity value. This value can be used to value a company and understand if a company is overvalued or undervalued in the market. What is an asset?An asse
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An auction market is the market where interested buyers and sellers enter ambitious bids and offers, respectively, at the same time. The price at which the security trade reflects the highest price the buyer is interested to pay and the lowest price at which the seller is interested to sell. The trade is executed at the price where the bid and the offer price match. It is different from an over
Basis Risk
Basis Risk is a type of systematic risk that arises where perfect hedging is not possible. When there is a variation between hedge/futures/relative price and cash/spot price of the hedged underlying at any given point of time, that variation is called ‘Basis’ and risk associated with it is called Basis Risk. Basis is simply the relationship between the cash price and future price of an underlyi